Your Tax Assets are Worth Less (than management says)

Among the most interesting holdco justifications is the need to protect the realizable value of tax assets, often in plentiful supply at diversified holdcos, as the argument for diversification is often an escape from the awful economics of the legacy business, the source of the NOLs that gave rise to the tax assets.



At first blush, this might seem prudent – avoiding asset impairment is a good practice.  And yet, tax assets seem a curious rationale for a holdco, let alone a diversified one.  It seems to be a case of making a mistake by forgetting the objecitve, which is to earn high returns on capital.



Tax assets, it must be said, come in many forms.  Those that arise from differences between tax and financial account treatment of depreciation or similar „timing“ differences are pretty solid assets.  Like the cash cycle they are basically short term in nature and can be expected to be realized in the near term, and no later than the useful life of the operating assets that gave rise to them.  NOL tax assets are a horse of another color.  These tend to pile up in operations that are consistently loss making and which have few prospects for earning enough to recover those tax assets in the future.  In holdcos, the operations have often been shut down or sold, leaving behind some capital of the cash box sort and a pile of „assets we would like to find a use for“.



The problem is that the IRS makes this rather difficult.  Internal Revenue Code Section 382, which sets the rules that have to be followed in order to realize tax assets explicitly limits several actions, like selliing or merging the firm as well as some other complex rules.  The point of the IRC is to prevent people from selling defunct businesses as tax shelters.  You have to continue to operate a business yourself.



Finding a use for these assets is actually remarkably tough in a world in which there is no inflation and asset prices are sky high.  Think about it this way.  Imagine you are a firm, like Hudson RPO (HSON), and you have $300mn in NOLs, supporting $60m or so in DTAs.  (Pretty good if your market cap is $35m).   Now, NOLs usually expire, so you have to earn offsetting income within 20-25 years.  But even if you had 30 years, you would need to earn $10m a year every year for those 30 years.  But you don’t have operations that can generate this sort of profit, certainly not consistently.  If you did, you wouldn’t have $300m in NOLs, you would have a balance sheet comprised of operating assets. 



Therefore, you need to BUY a business that has that earning power and you are going to pay a going concern multiple to do so.  It will take something between 100-200mn probably to do this deal.  You cannot offer stock, because that would give the new firm too much ownership and limit the DTAs.  You have to pay cash.  But your box isn’t big enough for that.  So you have to try and purchase lots of little firms – you can see why diversified holdco structure seems to be the best way to go – it is the only way to get all the looks you need.  But then you have to operate lots of subscale oddballs under one umbrella, or you try and rollup an industry – like HVAC firms in Arizona.



Sure you can seed a business – but then you probably don’t need to be a diversifed holdco, what you want is to become a dominant operating company, which means you need someone who is not a financier, probably; you need someone with a passion for solving a specific human problem.



There are some reasonably probable ways to turn small piles of capital into profits – buying cashflow real estate at low cap rates will create a stream of earnings.  Except that in most cases, it will be more efficient to hold the real estate outside of the holdco.  So really what is the point?  Buy some land and become a land trust?



Similarly, you could buy securities that pay interest or dividends, but pretty soon you become an investment company, which limits the sorts of investors you can have and forces you to go private or become a CEF with a licensed management company.  Either way, an investment company isn’t taxed directly, so the benefits of the tax assets disappear.



I find the DTA thing strange for another reason: taxes on corporate profits aren’t that high.  During periods of high taxation and high inflation, DTAs can be great – you can almost always expect that rising revenue and rising nominal profits will enable you to use fixed value NOLs and shelter significant tax.  In the 1960-1980s, those tax rates were about 50%.  But along with the reforms that made it harder to take deductions like NOLs, tax rates were dropped significantly.  At the 21% we have now, a dollar of NOLs is only worth 21 cents.  And only once.  A dollar invested in a good business is worth considerably more than that – every year.



It seems silly to trap capital inside of such a structure in service to a tax optimization strategy at the expense of reinvesting it in better opportunities that happen to limit the ability to claim and shelter taxes.  It is putting the tax shelter ahead of the objective – which is to earn high returns on capital.  This is the sort of thinking that arrogant retail investor commenters on Seeking Alpha employed to explain the brilliance of their investments in MLPs, until they blew up.  „Look at my yield! And I get to shaft the tax man, too!  I am so smart!“.  Then Kinder Morgan blows up and … crickets.  Why copy them?



So why then do managements work so hard to defend these assets, when they should be focused on improving the capital base and the operations of the holdco?  Well, here Whitman’s discussion of communities of interest and communities of conflict come into play.  DTAs are a great excuse for management to entrench itself and add poison pills like rights offerings ostensibly to protect DTAs from being limited by a change in control, which ensures that THEY remain in control.

What I like and hate about Dividend Growth Investing

Dividend growth investing, or DGI as it is often known, is a popular strategy for investing in stocks that receives immense digital ink on investment websites like Seeking Alpha and other places retail investors congregate.  I think the main reason that it is so popular is that it is a strategy that works for retail investors in that it can be put into practice without too much effort and without requiring huge amounts of research.  I have generally found it sort of lazy, even as I have considered the importance of dividends in my own investing.  I realize that there is much value in the approach, it is the writing that is lazy - a source of poorly researched clickbait.  So, I want to give it a fuller and fairer treatment here on my own personal blog.

Depending on how you count them, DGI has three (four) major virtues as an investment strategy.
The first is that it is long term.  I have heard several investors argue that in spite of considerable efforts by folks like AQR to reduce alpha to the impact of a set of factors, that duration - a willingness to simply let an investment strategy compound for long periods, cannot be deconstructed in this way.  At a minimum, long term as in any form of buy and hold, minimizes transactions and therefore minimizes fees, which is always helpful.

A second factor, which is related to the first is that having a long term orientation of this kind pushes the investor towards QUALITY.  Dividend paying firms - particularly those that are able to raise dividends regularly, are firms that are going to generate stable and recurring cash flow far in excess of reinvestment requirements.  They will generally have considerable ability to apply leverage to goose returns and to do deals, minimizing the amount of equity that has to be held on the balance sheet - capitalizing on the (often unrecognized) goodwill.

Third, I think dividends, and particularly dividend growth, enables the investor to ride out periods of market volatility, or indeed just the normal up and down of the price cycle, because of a psychological "stabilizer" that is the history of rising dividends.  It is so much easier to ignore the current price of a stock when looking at your gain / loss or cost basis, you get to watch a history of rising dividend payments stretching back unbroken to your first purchase.  For myself, I can say that one of my long term holdings, Colgate (CL) does this for me.  It was a large position when I started, and has gotten smaller as some other investments have grown faster, and as contributions have been allocated to other things, and yet, the value has increased dramatically since I bought it 15 years ago, with the dividend stream rising 5x (I DRIP dividends on CL).  It is so much easier to look at THAT trend and ignore the "noise" in the price signals in the daily market moves of the stock.  If CL is able to increase dividends by another 5x over the next 15 years and 5x in the 15 years after that, I will have dividends 125x my first dividend payment and will receive quarterly about 75% of what I invested.  Sure, that will have taken 45 years, but so what?  Would $4k invested in Social Security be worth $12k in annual pensions 45 years later?  This is the power of long term thinking.  There is no guarantee of course, that CL can continue to extrapolate dividends at this rate.  For one thing, dividend growth there has slowed considerably in the last few years as slow top line growth has caught up with the company.  The former CEO used financial leverage and engineering to keep the dividend rising, but the new CEO wants to derisk and is slowing dividend growth.  Anyway, the previous CEO found that he had to do the same in the end, lest the payout ratio rise too high.

This sort of equanimity is possible because of the fourth factor, which is that dividends are valuable not so much because of the change in the duration of returns (which is the way that most academic financial writers talk about it: as risk reduction.  The real benefit is that you have a source of return other than the market itself which makes you less dependent and less interested in the market volatility.  Receiving your return internally - paid by the operations of the business - makes your stock much more akin to a bond.  One without a fixed maturity, admittedly, but a perpetual bond is an attractive investment in many cases, particularly if there is an inflation kicker.  It tends to moderate the market swings, too.

Given this, I think there is no reason to discourage this approach.  In fact, I think it is an entirely reasonable way to build a portfolio of above average quality businesses while reducing market sensitivity over time and experiencing solid compounding as one gets the chance to reinvest dividends to acquire more shares.

Particularly if one pays especial attention to the price paid, some dividend stocks can offer truly excellent rates of return and the ability to purchase a long term income stream at very attractive prices and thereby lock in considerable retirement (or extra investing) income for prices that could not be purchased any other way.  I wrote about this in an article about BAC, answering a comment from a Seeking Alpha article.  A commenter was trying to understand why so many BAC shareholders were rooting for continued low prices (enabling faster and larger buybacks and therefore faster long term dividend hikes).

WHAT I DISLIKE

My problem with this approach has less to do with the theory or even the mechanics than with the commentariat on the topic.  All too often dividends history serves as a substitute for fundamental research necessary to estimate the sustainability of those same dividends.  In this way, it focuses its adherents on the capital account, rather than business fundamentals, as a means of evaluating the investment and this is not a good way to think.

The most common way of doing this is to have people look at questions of sustained dividend increases by selecting names from a list of Dividend Aristocrats.  To the extent that this is a list that identifies quality (you have to have a good business to be able to raise dividends consistently over very long periods) and a management priority to provide a return via dividends, it is a good place to start.  But when the discussion is about how many years the investor "require" to be a good investment I think it overlooks the not small probability that some long-running dividend payers can suddenly find themselves in tough going.  Often these are mature tech companies, but we see it in other firms as well.

The worst sort of articles are those that focus on the yield.  All to often these are really retiree clickbait, like discussions of REITs or MLPs.  The emphasis all to often is on the tax implications of dividends - low taxes, or almost always issued with smugness, an idea that "return of capital" accounting provides the owner with some way to screw over the tax man.  These sorts of discussions, where the author is putting the cart before the horse, focusing the reader on easy to understand things, make me crazy.

In few cases are they writing about how DGI darlings are capitalized - how many articles were written by the DGI crowd explaining how the large yields they were receiving were an indication of the instability of the firm's capital structure, analyzing how it sought new investment through net share issuance while sustaining a high yield because that yield provided access to capital markets in the form of yield hungry investors?

My problem, in short is less DGI itself - though it tends to put the investor into mature firms, these can still produce excellent returns (look at SPGI, which I purchased in Feb of 2012) - the problem is with the way that the writing inevitably ignores or elides important considerations, aimed as it is on retail "investors" with limited experience or skill evaluating business quality or prospects.

Mostly, I fear this is a result of two or three factors: first, there is an element of the blind leading the blind in this area.  The analysis is superficial because it is written for people with limited knowledge and understanding by people with only slightly less knowledge and understanding.  (The Dunning Krüger effect runs deep in this set).  Second, the audience is one that lacks a more sophisticated toolset for some of the more important analysis - introducing lots of information that requires frameworks the reader lacks to be intelligible is basically unhelpful.  At best it leads them to conclude they don't know what to make of it.  This is not popular, though which leads to the third factor.  Many of these articles are written not to be thoughtful and thorough, but to fast and provide lots of clicks.  Quantity is much more important in building audience (brevity, at which I am hopeless, also helps), and so the nature and content of these things is set up to get people reading the material.

DGI then, is a solid strategy I believe that can help an investor focus on the strategy - the long term approach that they are taking and helps tune out the noise associated with stocks of "infinite" duration.  In the end, the basic problem is that it is a hermeneutic that is too often used as a shortcut that short circuits the more difficult analysis that are required for fundamentals investing.

Why so many BAC shareholders are ok with a low share price

After Bank of America (BAC) reported 19Q3 earnings this week, there were some discussions on Seeking Alpha by commenters arguing for the benefits of sustained low share price for the bank.  Naturally, this seemed to confuse at least one poster, and this topic has been running in the background on several online conversations.

On the surface, it seems sort of odd, doesn't it, for shareholders to actually desire LOWER prices for their portfolio positions?  Don't investors want the shares to rise?  Ultimately, probably yes, but I think what this discussion shows is the heterogeneity of shareholder objectives in a public company.  Marty Whitman talked about this idea at length, and expressed a view that one of the biggest mistakes that academic finance has made (and reflected in law and regulation) is the substantial consolidation of the firm and the shareholders.  He had a rather intelligent understanding of the various stakeholders in a firm and a Venn Diagramm-like view of overlapping communities of interest and opposition (and presumably indifference, although he didn't explore this to my knowledge).

So what is the deal with BAC and shareholders happy to have lower prices?  Well, I think it depends heavily on when you bought your shares and what you think you are doing with that investment.  There are many retail investors - the sort of people who post comments on SA - who purchased these shares some time ago.  Many purchased them in the 4th quarter of 2011, after Warren Buffett got 700mn options at $7.14 and the share price, after a brief spike, subsequently crashed to a low of $5 in early December of that year.  Much of this 4th quarter move appears to this writer to have been tax loss selling, as the minute 2012 came rolling around, the shares went on a run to $12 in a matter of weeks.  I digress.

The point is, if you loaded up as a retail investor in late 2011, you were probably thinking that the bank was not on death's door, although it was price as though this was the case, and that eventually the business would be capable of generating solid profits per share and paying large dividends.  Eight years later, that reality has come to pass.

At this point, if you are that sort of retail investor, you may be doing this sort of math: this stock is a cheap pension.  Let's say you purchased 10,000 shares of BAC at an average cost of $7.  You might have done much better than this, but let's not push the envelope too far.  Looking out to 2021, you can reasonably expect the dividend to reach $1 and rise from there.  If 50% of the 2019 shares can be bought in by 2031, not unreasonable if the company gets a few more years of being able to net repurchase 10% of the shares out and then steadily works at a mid single digit net repurchase rate, EPS should rise to something on the order of $6 a share without any organic growth.  If the dividend rate were to rise to around 50%, you could be looking at a $30k pension 20 years after the investment of $70k.  Moreover, just taking the expected returns from 2021 (of $10k - $1 per share on 10k in shares), you would have expected to receive $100k back on your initial investment BEFORE getting at $30k rising annuity pension.  This probably understates the capital return because it is unlike to remain at $1 for ten years before rising to $3.  If it advanced linearly over the 10 year period, the average would be $2 per share, good for a $200k return, or 3x the initial investment while STILL holding that investment and being entitled to the same $30k rising annuity pension.

This ignores the dividends likely to be paid between 2016 and 2021, which are good for a couple dollars per share in total.

Moreover, if the bank is able to increase earnings through cost control and a slow growth of the balance sheet and a slow shift toward greater tangible value (assuming intangibles remain stable) perhaps total earnings might grow 50% over the period, enabling EPS of $9 per share (good for an earnings yield on cost of well over 100% per annum) and a payout closer to $45k.

Compare that to Social Security, where an upper middle class earner can be expected to contribute over $12k per year (don't forget, employees pay the employer half of the the 12.4%) for 40 years ($480k) to have a similar pension.  The difference is, the BAC investor, who might have been a typical GenX 35 year old in 2011, paid MUCH less, doesn't have to wait to 67 to collect - his 30k BAC "pension" is available at 55 after returning 2-3x his initial investment.  He gets to collect for 12 more years - worth a stunning $400-$500k more, not to mention the ongoing rise in his income thereafter (his annuity at 67 will be much much higher than Social Security).  Finally, unlike an insurance annuity, this investor retains ownership over the principal which is likely to be capitalized at some 20x-25x the dividend payout.  $700k-$1.2m in 2031 will be worth less than at present, but this is a simply massive return.

But a not considerable amount of this return is based on teh ability of the bank to repurchase shares cheaply, which, so far, the market has allowed for.

I get that it is frustrating.  If a significant portion of your portfolio is invested in BAC, then you have not seen that portion of your brokerage statement drive a result since 2017.  If you are being paid to manage money and have promised investors that you will beat the market over certain time periods, you may find it difficult to hold BAC even as it gets objectively cheaper.

There are also risks, not least of which is credit quality and other macro factors like interest rates.  Then there are the fintech firms that are looking for ways to reduce the dependence on the centralized ledgers of banks and the permissioned system of transaction verification.  These could be near mortal threats to the fees that banks are able to charge for operating the payments system.  Though in the end someone has to perform the underwriting functions associated with credit and banks are likely to continue to do that better than most other firms.

BAC has several other attractive features - among them the fact that it cannot do acquisitions for additional US deposits. When I first purchased BAC shares, this was a major highlight for me.  Alas, it did not prevent the acquisition of Countrywide.  Inasmuch as countrywide was an effort to get more control over the creation and marketing of mortgage backed securities to improve the position of BAC investment banking (the old Credit Suisse First Boston securities business that BAC acquired with BankBoston, but which they struggled to grow into a bulge bracket bank - not for lack of trying), it was also a deal that could be done that avoided the deposits question.  Such a deal could be done again (let us hope that it will not be).  BAC has the option to enter foreign markets with retaail banking, but they can wait for a very favorable time.

For these reasons, I have not sold BAC shares in some time, although obve $30 and in particular above $35 I think that the price to tangible book suggest that it might be time to trim.  But then I think, hold onto your shares (I have trimmed from my 2011 position becuase BAC was getting to be too large and becuase there were other things to purchase and finally because I perhaps lost sight of some of this along the way.  I believe that a few stocks like this are the key aspects of having a strong portfolio.  Knowing, as an investor, that you will not be destitute, provides you with much more leeway to pursue more speculative positions that have high risk reward characteristics.

The longer the stock remains cheap - so long as management remains committed to repurchases - the faster and more likely it is that the scenario outlined here will be a success.

My take on the FCA Renault Merger

Several people have asked me what I think about the merger of Fiat Chrylser Automobile (FCAU) and Groupe Renault (RNO-FR; RNSLY OTC).  Full disclosure, I own shares in FCAU.

I will admit to being a bit surprised at first, not at the merger, but at the partner, FCA chose.  I had thought that they would instead look to merge with PSA (Peugeot Citroen) becuase, in my view, PSA has stronger engineering and leadership.  That said, I think there is quite a bit of industrial logic, although Renault, with its special relationship with Nissan, comes with some challenges that might be helped by an FCA tie up, or might not be.

I will give you my thesis and then talk about some of the logic and then take some of the analysis to the brand level, where I think things are always more difficult to analyze (although it tends to be where much of the analysis is done in - and of - the industry).

My thesis is that FCA and Renault are merging because they have the same basic view of the industry: that consolidation is necessary - and they have a similar approach to how to manage it.  Moreover, both firms have demonstrated an ability to take industrial firms in adversity and resuscitate them and to manage complex tie ups across regions and product.  Yes, the Renault Nissan alliance is showing strain.  But it has worked with both firms far stronger as a result.  Less well known in the US is the success that Renault has had in rebranding and reviving Romanian car manufacturer Dacia and Russian LADA.  Both of these brands remain popular in Eastern Europe and needed careful stewardship by the sponsoring French firm.

Thus, my contention is that what management at both firms have decided is that the most important aspect of the industrial logic is to have managements that have the same objectives and focus and approach to managing industrial tie ups.  There is also a basic industrial logic, of course.  It wouldn't make sense to merge with a restaurant roll up no matter how much alignment there is at the managerial level.  Automotive firms, though are tricky.  The brands are sticky and powerful.  The ecosystems that sustain them are complex and job rich, therefore tie ups are popular political events as much as they are economic ones.  Given the set of pressures, it is important to avoid DaimlerChrysler style managerial conflict.  You need to have teams that work together and which are not going to raise too many sacred cows protecting jobs, plants, systems or products in any one market or market area.

Both Fiat and Renault have proven themselves capable of this.

One more thing - a solid tie up of this type creates further incentive for an outsider, like Marchionne and Ghosn, to step in to lead the combination of the entity without legacy allegiance to either side.

In short, this seems a continuation of the strategy that both firms have pursued independently and successfully.  The meeting of the minds at the managerial level was likely too good to pass up even if another firm might have made more sense on paper.  Firms don't exist on paper.  They are people and the people need to be able to work together.



Since the rise of Marchionne to the chief executive role of Fiat, the strategy has been one of consolidation and scaling.  Fiat deftly pursued several incredibly shrewd recapitalizations, starting with forcing GM to pay it $2bn to invalidate the put option that Fiat had with GM.  That provided just enough money to invest in a small vehicle platform (that became the Panda and several other small vehicles), two small engines and an upgrade at Maserati.  Those programs all worked stupendously and with some other smart restructuring, Fiat was able to buy Chrysler out of bankruptcy.

Again, capital allocation was masterful.  Chrysler had, as part of its divorce from Daimler, several solid platforms including the old M-Class (164 chassis) and the old E-Class platform (211 Chassis), on which it had planned to build the Dodge Caravan, and the 300.  These two platforms were well engineered and well designed and by 2009 had all of the "bugs" worked out.  There were a few issues to mate those chassis with the different bodies that FCA wanted, but most importantly, what FCA realized was that it platforms that, for its customers, could go for years with little capex, allowing for that money to instead be invested in RAM and in Jeep, brands that could earn significant premia and very good contribution margins.

Along with some "slimming" of Fiat Industrial and a spin of Ferrari, both of which raised significant cash, FCA, which had started with a terrible product plan and no money, found itself with strong product and brands, decent operating margins and net industrial cash.  (Recent performance woes at Maserati suggest that there might not have been enough investment there as the company got really focused on building the Alfa Romeo product - incredibly compelling product, it must be said, but the Quattroporte was allowed to age, even though I think it still looks great).

But in spite of all of this focus on internal cash generation and recapitalization of the business, the fact remains, the strategy from the get go has been to scale up in car manufacturing.  15 years after Marchionne took the helm and a year after his death, nothing there has changed.  Sure, Marchionne took $2bn to avoid a merger with GM.  That seemed to run against the strategy.  Except that it was already obvious that GM, particularly a Rick Waggoner-led GM, which kept promising that prosperity was right around the corner, just as soon as xyz problem (often pensions and postretirement costs) was behind them they could invest more in product and win in the market, was never going to be able to invest enough in Fiat for either firm to survive.  GM was a dead man walking, and Marchionne didn't want that deal - at least not with Old GM.

Instead, he picked what seemed a weaker partner in Chrysler.  But here, I think, Marchionne was smart.  He knew that the organization had some good assets that needed proper deployment with proper capital allocation.  He also knew that the organization was looking for leadership - it was not going to be able to put up much of a fight when Fiat started to make changes.  GM was still far too ossified.  Chrysler, after 10 years of German and PE occupation, was ready for leadership ready to cultivate its unique strengths.

Once he had FCA, though, Marchionne often went seemingly without shame, cap in hand to other manufacturers to try and get them to merge with him.  His pandering to New GM and Mary Barra was particularly shameless, but his point was always the same.  Even with six million units, FCA was not big enough  for what is coming.  Given the complexity, he needed a partner that saw things his way.

Renault, it must be said, was in a similar way.  It was an early proponent of buying and upgrading weaker players and it was aggressive in the way it went into Eastern Europe to find scale for its systems.  Ultimately, these investments, under Louis Schweitzer, proved sound.  Moreover, snatching Nissan during a moment of weakness was a masterstroke.  Here, like Chrysler, you had a company that had some strong product, but lacked the ability to really get it to market effectively.  Renault raised the capital necessary to both control Nissan and to invest in the Pathfinder platform that revived the brand in the US.  The price was low, which sticks in the craw of so many Japanese.  It seems strange that 20 years on, they have never thought to complete the merger and become one integrated company.  I suspect that after the FCA merger, there will be more pressure to do so.  The larger value of a merged Groupe Renault FCA will reduce the logic for Nissan to try and acquire more of Renault (it is blocked from this anyway by Renault's control of Nissan's board).  It will be easier to accept the unequal nature of the relationship when Groupe Renault FCA is the much larger entity.

On the platform front, this merger should enable significant reduction in duplicative investment in factories and in product.  The auto industry faces a unqiue set of challenges in which the nature of the offering is set to change in some very fundamental ways.  Once this happens, the competitive attributes are likely to change in ways that are possibly going to reduce the importance of brands and differentiation in the product and focus more on cost and convenience.  Much of the value add may turn out to be post-sale / delivery and so investments in factories and large and complex product platforms may chagne.  Of course, they may not.  Cost is likely to become a bigger factor as is the ability to amortize investments in platform architectures for IT services and solutions over large unit volume is likely to be immensely important.

This is why consolidation is nearly certain.  FCA and Renault compete for many of the same customers, albeit often in different markets.  There should be opportunities to imrpove European operations and margins for both firms.  FCA gives Renault a variety of routes back to the US and the means to tap into US supplier networks, particularly around connectivity, electrification and autonomy.  It also opens LATAM more effectively for Renault Nissan.

The Nissan arrangement also allows for more collaboration in SUVs in the US market and in Asia.  I Suspect that they are not done looking for tie ups.  They still lack the premium brand like an Audi or Mercedes that can earn extra contribution for selling upgraded versions of the lower cars architecture. Maserati is not really fulfilling this role, though I expect Wester to be able to fix the problems.  There will continue to be a tension, I think between Maserati and Alfa as both have product portfolios that are smaller than competitors.

There will be challenges straightening out the brand identities, I think, of Fiat, Renault, Dacia, LADA and possibly Lancia.  Chrysler, which has been repositioned as the autonomy brand and is also likely to need some work, Dodge too.  But these things can be evolved over time, or killed where they are found to be excessive.

In short, I think FCA has done well here.  I think Renault also needed to change the dynamic with the friction in the partnership with Nissan and both firms have a deeply strategic and long term approach to the business.